Exports boost robust Swedish economy

The positive output gap in the Swedish economy will widen further this year. With stable global economic recovery giving Swedish exporters a helping hand, exports will increasingly drive economic growth in Sweden in the coming years. The economic boom is also evident in the Swedish labour market, with more and more immigrants finding work. Such are the results of the latest forecast from the National Institute of Economic Research (NIER).

The investment-led recovery in the OECD countries is good news for Swedish exports, which include a high proportion of capital and intermediate goods. Exports will therefore make a larger contribution to GDP growth in the coming years than in 2016. On the other hand, growth in domestic demand is more subdued, having been fuelled last year by rapidly rising spending on refugee reception. This year and next, this spending will be much lower, and government consumption will grow more slowly. Housing investment, which has risen rapidly in recent years, is also set to increase less quickly, further depressing growth in domestic demand. The lower growth in homebuilding is due partly to mounting shortages of labour in the sector.

The continued economic boom means that demand for labour will be high in 2017 and 2018. Firms’ recruitment plans indicate a major need for more personnel, but the growing scarcity of labour with the right skills will curb employment growth in 2018.

Unexpectedly high tax revenue in 2016 meant that structural net lending was above the proposed new surplus target. This year, fiscal policy will be mildly expansionary, and structural net lending will decrease slightly. At the same time, changes in the age structure of the population mean that demand for health care, education and elderly care, is growing relatively quickly. To keep personnel density in the provision of welfare services and replacement rates for transfers to households unchanged from 2017 levels, limited tax or other funding increases in central and local government will be required in 2018. After that, the public sector welfare commitment can be met with unchanged tax rates through to 2021 while still meeting the new surplus target during the period.

Riksbank on hold

Although headline inflation hit 2 per cent in February, core inflation – which excludes energy and food prices – is still low. The Riksbank will therefore wait before raising the repo rate, with a first hike not expected until the third quarter of 2018.

Selected indicators

Percentage change, unless otherwise indicated.

2015

2016

2017

2018

2019

2020

2021

GDP, market prices

4.1

3.3

2.5

2.1

1.7

1.9

2.0

GDP per capita

3.0

2.1

1.2

0.9

0.6

0.8

0.8

GDP, calendar-adjusted

3.8

3.0

2.8

2.2

1.8

1.7

1.8

GDP, world

3.2

3.1

3.5

3.5

3.5

3.5

3.6

Current account balance (1)

4.7

4.9

5.5

5.2

4.9

4.6

4.3

Hours worked (2)

1.0

1.7

1.4

1.2

0.8

0.4

0.4

Employment

1.4

1.5

1.7

0.8

0.6

0.4

0.4

Unemployment rate (3)

7.4

6.9

6.7

6.5

6.5

6.5

6.7

Labour market gap (4)

–1.1

–0.3

0.2

0.5

0.6

0.3

0.1

Output gap (5)

–0.6

0.4

1.0

1.1

0.7

0.3

0.1

Hourly earnings (6)

2.4

2.5

3.0

3.1

3.3

3.4

3.5

Hourly labour costs (2)

4.1

3.1

3.3

3.1

3.3

3.4

3.5

Productivity (2)

2.5

1.0

1.4

1.1

1.0

1.3

1.4

CPI

0.0

1.0

1.5

1.6

2.4

3.1

2.7

CPIF

0.9

1.4

1.7

1.6

1.8

2.0

2.1

Repo rate (7,8)

–0.35

–0.50

–0.50

–0.25

0.50

1.50

1.75

Ten-year government bond rate (7)

0.7

0.5

0.8

1.4

1.9

2.4

2.8

Effective krona exchange rate index (KIX) (9)

112.6

111.7

112.6

110.8

109.1

107.4

105.7

Government net lending (1)

0.3

0.9

0.5

0.6

0.8

0.7

0.5

Structural net lending (10)

–0.1

0.6

0.4

0.4

0.5

0.5

0.5

Maastricht debt (1,8)

43.9

41.3

39.2

37.5

36.1

34.8

33.8

Per cent of GDP.

Calendar-adjusted.

Per cent of labour force.

Difference between actual and potential hours worked in per cent of potential hours worked.

Difference between actual and potential GDP in per cent of potential GDP.

The National Institute of Economic Research (NIER) is a government agency operating under the Ministry of Finance. We perform analyses and forecasts of the Swedish and international economy. We also conduct economic research.